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Brokers Bracing For Shake-up

Commissioner Kenneth Hayne has delivered recommendations from the royal commission into financial misconduct that could see consumers forced to pay upfront mortgage broker fees. The recommendations for the radical shake-up to the broking industry was not unexpected, in early 2017 The Australian Securities & Investments Commission (ASIC) conducted a “Review of mortgage broker remuneration”.

In its review as noted online The Advisor HERE on March 17, 2017, ASIC is calling for change to standard commissions and a move away from bonuses with proposals such as:

  1. Changing the standard commission model
  2. Moving away from bonus commissions and bonus payments, which increase the risk of poor consumer outcomes
  3. Moving away from soft dollar benefits, which increase the risk of poor consumer outcomes and can undermine competition
  4. Clearer disclosure of ownership structures within the home loan market to improve competition
  5. Establishing a new public reporting regime of consumer outcomes and competition in the home loan market
  6. Improving the oversight of brokers by lenders and aggregators

In a recent online article HERE consumer advocate Choice are calling for “best interest duty” for mortgage brokers. The article states, “Right now, a mortgage broker has a legal obligation to arrange a "not unsuitable" loan. Not a good loan. Not the best loan. Just "not unsuitable" – something you can afford to pay. CHOICE believes that brokers must be held to a higher standard. They should be legally required to act in the best interest of consumers and arrange the best quality loan for each person they see."

In the Financial Review an article by Duncan Hughes (Fef 5th, 2019)  HERE notes claims by the Australian Finance Group, the nation's largest broker network that “the commission placed too much emphasis on "self-serving" comments by Commonwealth Bank, the nation's largest mortgage lender, about commissions that were "designed to win market share from smaller banks". The article goes on further  to note that “Mortgage brokers have sliced net interest margins of the big banks by up to 20 per cent during the past decade through increasing competition and reducing costs, according to analysis by KPMG.”

The Financial Review article goes on to note analysis by Core Logic which shows that  “More brokers, increased demand for product diversity and booming property markets helped turbocharge growth for big four bank competitors by more than 50 per cent to about $15 billion in the past five years.

These are the occasions when a peak body association has to advocate practical solutions that find a balance between its member’s interests and consumer expectations. The current broker model is beset by aggregators and incentivised commission structures and yet on the other hand has seen a rise in smaller lenders who are offering exceptional rates which have been drivers for competition in the marketplace. Homebuyers are typically highly satisfied with their brokers in facilitating funds to purchase their home but are increasingly finding they are unable to service their loans.

When compared to the settlement/conveyancing profession, which is a lean mean industry, our continued sustainability is reliant upon workable regulatory frameworks that deliver competition and independence of the professionals servicing consumers. The AICWA has, and continues, to advocate for regulatory frameworks that ensure we do not compromise the reason why settlement agents get up in the morning, after all it’s working in the client's best interest that matters!

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